STOCKS NEWS EUROPE-Bullish UBS note boosts Agricole, French banks

Shares in Credit Agricole (TLO: ACA.TI - news) rise 2.8 percent to the top of a flat pan-European FTSEurofirst 300 index as UBS (Xetra: UB0BL6 - news) adds the French lender to its key call list, saying market concerns over the group's balance sheet are overplayed.

Volume on the stock is already half its full-day average for the past three months, compared to 15 percent for the FTSEurofirst 300.

Credit Agricole trades at half its book value, a steep discount to country peers BNP Paribas (Milan: BNP.MI - news) , Societe Generale (Paris: FR0000130809 - news) and Natixis (Paris: FR0000120685 - news) , StarMine data shows, reflecting concerns about low capital and high leverage for Agricole's listed entity at a time when euro zone banks face a review from the European Central Bank.

"Some regulatory tail-risks exist, but we currently think the market discounts a worst-case scenario - an outcome we view as unlikely," UBS's analysts write in a note."

"We expect the ECB's Asset Quality and balance-sheet review to be conducted at the level of the Credit Agricole Group (not listed entity) - leaving (Credit Agricole's) management in a strong position to deliver a shareholder-friendly deleveraging agenda in 2014E."

They raise their target price on the stock, which trades at 9.20 euros, to 10.80 euros from 10.50 euros with an unchanged "buy" recommendation.

In the same note, UBS upgrades BNP Paribas to "buy" from "neutral", saying it has the potential to outperform peers in the first half of 2014, and upgrades Societe Generale to "neutral" from "sell", citing the bank's strong progress to build capital and re-balance its funding.

Shares in Societe Generale and BNP Paribas both rise 0.5 percent.

"In this report, we become more positive on the French banks into 2014," UBS says. "This reflects our view that the French banks are adapting to the post-crisis landscape at a faster pace, and lower P&L (profit and losses) cost, than we previously anticipated."

Reuters messaging rm://francesco.canepa.thomsonreuters.com@reuters.net